What is Ripple ?

Ripple (XRP) is a payment network for banks with the aim of making international payments between them more efficient and cost-effective. It is a system that is primarily dedicated to payments between different currency areas and tries to make inefficient payment corridors efficient. That’s why Ripple is often referred to as the “bitcoin of banks”.

What problem does Ripple want to solve?

Banks or payment service providers face two problems with cross-border transactions (in different currency areas): on the one hand, there must be liquidity in all the currencies involved, and on the other hand, it must be ensured that the payment is working. For this purpose, Ripple has developed very innovative solutions over the last few years. If you want to get more involved with this topic, you can look into the so-called Nostro and Loro accounts which banks have to hold in each currency in order to remain liquid

Roughly described is a nostro account (nostro, ital. “Our”) an account of a bank at another bank. A Loro account (loro, ital. “Hers”) is the same account, but from the perspective of the bank on which the account is kept. If a bank now wants to make a payment between different currency areas, it must first instruct the other bank to charge the nostro account accordingly. These accounts are associated with immense costs and risks (inflation), since the money (several trillions worldwide) is merely parked but not normally used. Furthermore, nostro accounts have to operate in a foreign currency, which means that they are exposed to the risk of inflation. Banks face major problems and challenges in international payments. While these issues and challenges can not be fully resolved with Ripple, costs can be greatly reduced.

Ripple is not just a traditional cryptocurrency, but has a comprehensive system with multiple products. The so-called RippleLabs researches and develops Ripple’s various systems. These include xRapid, xCurrent and xVia.

What is xRapid?

xRapid ensures liquidity in international payments. This not only minimizes costs, but also accelerates transactions. A major problem for international payments is the so-called inflation risk on the Nostro and Loro accounts, where payment service providers hold units of each currency. XRapid dramatically reduces capital requirements on Nostro and Loro accounts as on-demand liquidity can be offered and inquired using the XRP Coin. Furthermore, it is no longer necessary for every bank to have a nostro account; it is enough for anyone to do so and provide liquidity when needed.

xCurrent is the application that enables the payment traffic from the provided liquidity of xRapid. xCurrent enables cross-border transactions to be completed end-to-end within just a few seconds. According to Ripple, banks could reduce their costs in payment transactions with xCurrent by approx. Lower 33%. Furthermore, xCurrent validations of incoming and outgoing transactions can be confirmed in real-time and unchangeable. To clarify transactions, the RippleNet Advisory Board has developed a rulebook that sets the operational and legal framework.

What is xCurrent?

xCurrent is the application that enables the payment traffic from the provided liquidity of xRapid. xCurrent enables cross-border transactions to be completed end-to-end within just a few seconds. According to Ripple, banks could reduce their costs in payment transactions with xCurrent by approx. Lower 33%. Furthermore, xCurrent validations of incoming and outgoing transactions can be confirmed in real-time and unchangeable. To clarify transactions, the RippleNet Advisory Board has developed a rulebook that sets the operational and legal framework.

What is xVia ?

Finally, xVia is an interface, while linking xRapid and xCurrent. Payment service providers can use xVia to make cross-border payments from different currency areas efficiently, reliably, transparently and quickly. In addition, documents such as invoices or cover letters can be attached. Currently, around 1,500 transactions per second can be sent using Ripple. However, the structure of Ripple makes it easy to increase the number of transactions per second to over 50,000. This would only require more so-called “Trusted Validator Nodes”. A transaction in the ripple network takes about 4 seconds.

Is Ripple (XRP) decentralized?

The cryptocurrency XRP is often criticized and is sometimes discussed controversially. This is mainly due to the fact that XRP was not distributed in a decentralized way, but is for the most part held centrally by the developers themselves. Around 55% of all XRP coins are currently reserved for developers and stored on an escrow (a cryptographically secured trust account). This escrow ensures that developers can not continuously access their entire $ 55 billion reserved XRP, but only 1 billion coins per month. In recent months, an average of approx. 300 million new XRP per month circulated.

Another point that speaks for a centrality of XRP is that it currently needs so-called validator nodes to confirm transactions in the network. There are currently only a few such nodes. All validator nodes are currently operated by Ripple itself. There are currently several hundred nodes, but only so-called “trusted nodes” can validate transactions. This validation of a node as a trusted node must be centralized by Ripple. This central authorization leads to a strong influence and thus a strong centrality of ripple or XRP.

However, it should be noted that Ripple is well aware of this problem and is working to find a solution to it. Despite the ideal behind cryptocurrencies to restore people’s personal freedom and further rid the world of unnecessary middlemen, Ripple is certainly right in one point: if ripples against established institutions such as the US. For example, if SWIFT wants to have a chance in payment transactions, there must be a single point of contact; and that’s ripple. In order for Ripple to influence development, they not only need to be financially resourced, but also have an impact on the distribution of XRP coins. The purpose of the XRP Coin is to serve as the central unit of liquidity in the ripple system.

How are Ripple and the XRP Coin related?

The technology behind Ripple is fulminating and has the potential to assert itself as the “bitcoin of the banks.” The only thing not to be forgotten is that the system behind Ripple is the innovation, not the XRP Coin Currently, the XRP Coin is used in the Ripple network because it is issued by Ripple himself, and at first glance, there is some evidence that banks are simply using the ripple system and creating their own coin explain why banks should not do that.

What is the currency XRP needed for?

The fact that Ripple wants to support the current financial system only and does not fully share the basic idea of ​​the Blockchain, critics argue that Ripple should operate only a startup and the cryptocurrency market with their XRP Coin should not misuse. At first glance, this argument seems perfectly legitimate. However, if you think more about the functionality of the ripple system, you notice that for the ripple system a single central and bank-independent currency makes perfect sense. Now, this currency does not necessarily have to be XRP – however, given its prevailing position among ripple developers and its position as a “first mover” this is very likely. But it could also be that banks create their own bankcoins and want to use the ripple network with their own coin.

Brad Gearlinghouse, the CEO of Ripple, has published an editorial on the issue, detailing two of Ripple’s so-called bank-credit scenarios.

In the first scenario, banks across the globe decide to eliminate their competitive position and geopolitical differences, creating a common currency that is regulated and used collectively. A “big chance” – said Brad Garlinghouse.

In the second and much more likely scenario, banks will not publish together, but only individually or in groups such bank coupons and regulate each individually. In the second scenario, banks would have to create a direct marketplace for exchange between their currencies. By allowing banks to easily manipulate the price of their own coins, their currencies must be covered by fiat currencies. On the one hand, for an efficient exchange of multiple digital currencies between banks, it is necessary for the first time to create a market for all these currencies. On the other hand, covering the bank account with a variety of currencies makes it a liability. A bank guarantees that the coin is worth at least the deposited amount. A payment by means of this coin would mean that the cover would also have to be postponed across borders – which in turn would lead to our present starting problem.

By contrast, XRP would be universally usable by all banks and there is already a clear rulebook. The high exchange rate risk in the current system is minimized by international payments in just a few seconds. Furthermore, as a system Ripple can guarantee fast payments with any currency, but these fast payments can only be handled quickly and, above all, cheaply with XRP. If a bank uses its own bankcoin to settle payments, it still has to keep any currency in the Nostro and Loro accounts to guarantee settlement. With XRP, the bank no longer has to run Nostro and Loro accounts, because it does not matter who owns the XRP in foreign currency, it’s just that it does one. Afterwards these are simply exchanged over the XRP system (by simultaneous purchases and sales). This gives XRP a decisive advantage over potential bank loans.

To sum up, Ripple wants to become the “Bitcoin for banks”. The ripple database solves the liquidity problem in international payments by exchanging notes (called IOU, “i owe you”) among the participants. These promissory notes record how much a participant owes another participant in which currency. Banks can issue these promissory notes in a gigantic volume, comparable to VISA transactions, within seconds, transparently, almost free of charge and unmanipulable.

Who already uses the ripple network?

There are already several companies that started testing Ripple in late 2017 and early 2018 respectively. These include numerous banks or payment service providers such as Western Union, Moneygram or Santander. Overall, Ripple already has over 100 partnerships – including banks, payment service providers and digital asset markets. It shows that Ripple can gradually provide a mature solution for payments in international currency areas and that large companies have already become aware of ripple. Many companies will probably wait to see what conclusion the testers for Ripple draw. If this turns out to be positive, it can happen quickly that Ripple is used not only cross-border, but also across institutes.

Where and How can I buy Ripple?

Ripple is one of the most popular cryptocurrencies on the market – so you can get the currency only in second place. In the euro area, buying ripple is currently only possible with a detour: